Treasury Proposes Putting a Fed Official on the FDIC’s Board

The Treasury Department inserted a potentially explosive provision in legislative language it sent to Capitol Hill on Thursday as it detailed its plan to reshuffle the authority of federal bank regulators.

Because Treasury’s plan would consolidate the Office of Thrift Supervision and the Office of the Comptroller of the Currency into a new regulator known as the National Bank Supervisor, Treasury had to come up with another entity to sit on the Federal Deposit Insurance Corp.’s five-member board (the head of the OTS and the OCC currently occupy two of the FDIC’s five board seats).

Who did Treasury officials pick for the fifth seat? The Federal Reserve.

The reason is it potentially explosive is because the FDIC and Fed are both proudly (or frustratingly, depending on who you ask) independent, and they clashed several times last year over how best to manage the financial crisis. It could also make things sort of interesting, especially if there is a systemic risk council that includes the FDIC advising the Fed and then the FDIC’s own board including the Fed.

It could also make for other interesting cases. If the FDIC wants to extend extreme assistance to a large, flailing bank, it must have a vote of its board (which would include someone from the Fed), then a vote of the Fed’s board (which would presumably include the same person), and then the recommendation from the Treasury Secretary.

“We would not view it as a conflict for [the Fed] to be” a member of the FDIC’s board, Treasury assistant secretary Michael Barr said on a press call Thursday.

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